building partnerships. serving communities. 1 mortgage purchase program: an improved opportunity...

Building Partnerships. Serving Communities.

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Mortgage Purchase Program:An Improved Opportunity

presented by

Don Erwin, VPMortgage Purchase Program Director


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MPP Overview

Introduced in 2001 as a program for prime traditional mortgages

Fixed rate, fixed term 5-30 years Maximum LTV / CLTV of 95% Minimum FICO of 680

154 members approved for MPP, and 109 members have been active, selling us $19.3 billion


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MPP Overview

MPP offers a benefit other GSEs don’t Income potential for good credit

quality via the Lender Risk Account (LRA)

LRA potential


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MPP Structure

MPP acquired loans are credit enhanced with:

Private mortgage insurance (if applicable)

Lender Risk Account (LRA) Supplemental Mortgage

Insurance (SMI) SMI similar to primary

mortgage insurance and protects FHLBI to about 50% LTV

SMI provided by MGIC or Genworth

SMI premiums thru 3/31/10 over $47 million

Current Program

Borrower Equity

Private Mortgage Insurance

(if applicable)

Lender Risk Account (Spread)

Supplemental Mortgage Insurance

FHLBI


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MPP Structure

Under our current master commitments nearly twice the amount of resources are required for SMI rather than LRA

However, the LRA has absorbed nearly all loss claims…

Annual Yield

Note Rate 5.00Servicing Fee -0.25Passed to FHLBI 4.75Funding of Lender Risk Account (Spread) -0.10Payment of SMI -0.20Net Yield to FHLBI 4.45


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MPP Loss Claims

SMI has been expensive – $47+ million premiums vs. $181k of losses

In comparison, $41+ million funded in the LRA which has covered $7.4 million of losses, and $11 million has been returned to selling members

MPP Credit WaterfallBorrower Equity

Private Mortgage Insurance(if applicable) $ Claim #

Lender Risk Account (Spread) Paid by LRA 7,417,902$ 222

Supplemental Mortgage Insurance Paid by SMI 180,804$ 7

FHLBI Paid by FHLBI 284,491$ 13

MPP Loss Claims as of 3/31/2010


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New Opportunity

FHLBI has recently received conditional approval to credit enhance MPP without SMI by using an improved or enhanced LRA*

Funds previously used for SMI premiums will be used to enhance the LRA

This new structure permits FHLBI to take advantage of the inefficient SMI structure and dramatically improve the value to MPP participants

* Program to commence following FHLBI’s compliance with certain terms and conditions as required by the Finance Agency.


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MPP Advantage

Introducing….MPP Advantage The Advantages are:

–Dramatically improved LRA opportunity–LRA funded up front – “Fixed LRA”–No prepayment risk – simpler LRA valuation–No reliance on SMI

Subject to final approval by FHFA FHLBI will assess a small administrative fee for

MPP Advantage LRA releases No impact to existing MCCs


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MPP Advantage vs Existing MPP

Dramatically improved LRA opportunity MPP Advantage offers 2-3 times the value

opportunity from the LRA compared to existing program

– Funded at loan acquisition minimum of 100-120bps

– Is NOT subject to prepayment risks – Has extended release term


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LRA funded up front – “Fixed LRA” Total funded value of fixed LRA is known up

front. The LRA amount is funded at the time loan is acquired by FHLBI

No prepayment risk* Once the LRA is funded, prepayments do not

reduce the future value of the fixed LRA Improved simplicity in valuing the LRA

* Loans prepaid in full within 120 days of acquisition by FHLBI may be subject to LRA recapture


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No reliance on SMI Cost of SMI has been redirected to the LRA Improved overall efficiency of the structure Eliminates confusion by SMI provider on

product quality

Current Program MPP Advantage

Borrower Equity Borrower Equity

Private Mortgage Insurance Private Mortgage Insurance

(if applicable) (if applicable)

Lender Risk Account (Spread) Lender Risk Account (Fixed)

Supplemental Mortgage Insurance Supplemental Lender Risk Account (Fixed)

FHLBI FHLBI


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MPP Advantage Example

Sample pool: Aggregate pool of $100 million LRA requirement of 120 bps LRA segregated into two tiers

LRA Tier 1 of 50bps minimum About the same as the lifetime value of LRA under

current program Tier 1 released in same timeframe as today: years

5 – 11 after contract fill up

LRA Tier 2 of 70bps Provides dramatic additional LRA opportunity Tier 2 released in years 12 – 26 after fill up


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A B C D E F G H I JYears LRA LRA FLRA SFLRA Total Total LRA LRA Total

Tier 1 Tier 2 Tier 1 Tier 2 Tier 1 Tier 2Since Retention Retention LRA LRA Maximum Maximum LRAFill Up 500,000$ 700,000$ 1,200,000$ Retention Release Release Release

0-4 100% 100% 500,000$ 700,000$ 1,200,000$ 100.0% -$ 5 85% 100% 425,000$ 700,000$ 1,125,000$ 93.8% 75,000$ -$ 75,000$ 6 70% 100% 350,000$ 700,000$ 1,050,000$ 87.5% 75,000$ -$ 75,000$ 7 50% 100% 250,000$ 700,000$ 950,000$ 79.2% 100,000$ -$ 100,000$ 8 40% 100% 200,000$ 700,000$ 900,000$ 75.0% 50,000$ -$ 50,000$ 9 25% 100% 125,000$ 700,000$ 825,000$ 68.8% 75,000$ -$ 75,000$

10 15% 100% 75,000$ 700,000$ 775,000$ 64.6% 50,000$ -$ 50,000$ 11 0% 100% -$ 700,000$ 700,000$ 58.3% 75,000$ -$ 75,000$ 12 0% 95% -$ 665,000$ 665,000$ 55.4% -$ 35,000$ 35,000$ 13 0% 90% -$ 630,000$ 630,000$ 52.5% -$ 35,000$ 35,000$ 14 0% 85% -$ 595,000$ 595,000$ 49.6% -$ 35,000$ 35,000$ 15 0% 80% -$ 560,000$ 560,000$ 46.7% -$ 35,000$ 35,000$ 16 0% 75% -$ 525,000$ 525,000$ 43.8% -$ 35,000$ 35,000$ 17 0% 70% -$ 490,000$ 490,000$ 40.8% -$ 35,000$ 35,000$ 18 0% 65% -$ 455,000$ 455,000$ 37.9% -$ 35,000$ 35,000$ 19 0% 60% -$ 420,000$ 420,000$ 35.0% -$ 35,000$ 35,000$ 20 0% 50% -$ 350,000$ 350,000$ 29.2% -$ 70,000$ 70,000$ 21 0% 45% -$ 315,000$ 315,000$ 26.3% -$ 35,000$ 35,000$ 22 0% 40% -$ 280,000$ 280,000$ 23.3% -$ 35,000$ 35,000$ 23 0% 25% -$ 175,000$ 175,000$ 14.6% -$ 105,000$ 105,000$ 24 0% 20% -$ 140,000$ 140,000$ 11.7% -$ 35,000$ 35,000$ 25 0% 15% -$ 105,000$ 105,000$ 8.8% -$ 35,000$ 35,000$ 26 0% 0% -$ -$ -$ 0.0% -$ 105,000$ 105,000$ 27 0% 0% -$ -$ -$ 0.0% -$ -$ -$ 28 0% 0% -$ -$ -$ 0.0% -$ -$ -$ 29 0% 0% -$ -$ -$ 0.0% -$ -$ -$ 30 0% 0% -$ -$ -$ 0.0% -$ -$ -$

500,000$ 700,000$ 1,200,000$


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0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.00% 0.10% 0.20% 0.30% 0.40% 0.50% 0.60% 0.70% 0.80% 0.90% 1.00%

PV

Cumulative Loan Losses

LRA Present Values*

MPP Advantage

MPP 8% CPR

MPP 12% CPR

MPP 30% CPR

Above based on following assumptions:- Single aggregate pool of $100MM- Loan losses experienced uniformly over 25 years- LRA released to seller as scheduled- Discount at 4.5%

* Estimates based on FHLBI’s cash flow model


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Summary

MPP Advantage offers substantial increase in LRA opportunity

MPP Advantage eliminates prepayment risk from value of LRA

MPP Advantage offers similar competitive price as today

MPP Advantage reflects the long term commitment of FHLBI members to mortgage financing


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Questions & Contact Info

Questions?

Contact Info: Don Erwin, MPP Director ([email protected])

317.465.0547 Cathy Garrett, MPP Acquisitions Mgr. (

[email protected]) 317.465.0553

building partnerships. serving communities. 1 mortgage purchase program: an improved opportunity...

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